Can I buy a house with a 725 credit score?

  • Posted on: 06 Aug 2024

  • Therefore, having a credit score of 725 is a good credit status, but does it qualify someone to secure a mortgage to support a house purchase? The short answer to the question is yes, as a 725 FICO score is acceptable, but you may not receive the most favorable terms in the mortgage loan.

    Based on the FICO credit score scale, a score of 725 puts you at the upper end of the good credit score rating of 670-739. The current average FICO credit score in the United States stands at approximately 695, and with a score of 725, you are slightly above the average American. Although 740 and above is considered to be a very good credit score, a 725 credit score will make you be considered a relatively responsible borrower hence qualifying for most of the mortgage.

    However, you will find that interest rates and fees will be slightly higher than that of a buyer who is offering a 740+ credit score. You may also have to provide a larger down payment or have to meet other requirements, such as lower debt-to-income ratios. However, if one spends some time searching for the best deal, one can easily find a 30-year fixed-rate mortgage at around mid to upper 3% as of the time of writing.

    Aspects That Effect Your Mortgage Approval Beyond Your Credit Rating

    You do not need to understand that when looking for a home loan, your credit score is not the only thing that the lenders look at to determine whether or not they will allow your application. Here are some other key aspects that impact your mortgage eligibility: Here are some other key aspects that impact your mortgage eligibility:

    Down payment amount – The down payment is commonly 3. 5% to 5% or more for conventional loans, but a 10% to 20% or more down payment is recommended to get a better rate with a score of 725.

    Income and debts – Lenders determine the debt-to-income (DTI) ratio to ensure that your monthly obligations are too high relative to your earnings. The most acceptable applicant DTI ratio should be 45% or lower as a way of passing with a 725 credit score.

    Categories of credit – In addition to your credit score, the lenders take time to look for the available credit accounts, their age, how frequently you make payments, your credit card balances, new credit inquiries, and more. These elements give more information on your borrowing profile apart from the actual score.

    Equity – Many lenders also wish to see the borrower have some extra reserve and assets besides the down payment money. Credit scores: Two to six months’ worth of housing payments in reserves are usually expected with low credit scores.

    Of the loan programs, FHA and VA are more adaptable to lower credit customers than conventional loans are. It must also be noted that higher-priced or distinctive properties can lead to a higher underwriting risk as well.

    Why Your Exact Score Matters Less Than Your Report

    What needs to be understood is that, whatever the score is, 725 or 735, or 715, your score is less important than the credit report and credit profile. FICO and VantageScore are two types of credit scores that employ slightly different measurement scales and formulas to assess your creditworthiness. Even two applicants with the same FICO score of 725 can have significantly different credit profiles, credit balances, account types, and payment histories, among other factors.

    This is why it is unwise to fixate on your three-digit score as some services do. There are no general cut-off regulations that say a credit score of 726 will always be acceptable but 724 will not be. Every lender has overlapping ranges of credit scores they approve or deny, depending on other aspects of your profile, mortgage products they offer, and general risk assessment at the time.

    Preapproval is useful to determine whether you will be approved for a loan or not.

    Instead of wondering whether your current 725 credit score is sufficient to qualify for a home loan or whether you could increase your score by a few more points, it makes more sense to get prequalified for a mortgage and ideally preapproved. Preapprovals confirm if lenders can offer you a tentative home loan based on if they: Preapprovals confirm if lenders can offer you a tentative home loan based on if they:

    Scrutinize and confirm your and your spouse’s financial status, income, liabilities, and so on.

    To check your full picture of payment history not only score, pull your real credit reports with the three bureaus. It is advisable to review items such as the funds you intend to bring as a down payment, the type of property, loan amount among others. Provide you with the first quotes depending on your profile and the loan products they deem you suitable for

    Preapproval letters mean the lenders have run their checks and underwritten all this information before you start bidding on properties. This way you can be very sure that a lender will offer you an X amount mortgage based on the fact that you have to find a home that meets their requirements. This places you head and shoulders above other potential buyers who are only prequalified or unqualified.

    However, even if you can get approved across lenders, it is wise to shop around for your personalized interest rates to be in a position to compare and get the best deal. Interest rates and fees are not only defined by credit scores but based on other factors across different lenders.

    How to Improve Your Chances by Raising Your Credit Scores Before Applying

    But if you currently have a credit score just below 725 or even borderline bad, it only makes sense to take some initial improvement measures first. Gaining your score to the mid-high 700 range before submitting applications for a mortgage of course makes you more qualified and bargaining for the loan. It also allows you to have several backup plans in case you do not get approved by most of the lenders.

    Here are quick ways to attempt to raise your credit score into the 720s or better in the short term:

    Optimal credit utilization rates that should not exceed 30% of the credit limit

    Reduce installment loans and other debts that are not secured by a home.

    Some of the steps you can follow include: Cleaning up your credit reports of any errors or inconsistencies.

    Obtain the status of an authorized user of an old, credit card account affiliated with a spouse or any other family member who has good credit standing.

    Avoid applying for credit in the months before applying for a mortgage.

    The Months Ahead

    Buying a new home that you can afford under your new mortgage may take weeks or months of searching for a house, bargaining for a favorable price, inspection, signing of documents, hidden costs or repair, or stress. Therefore, being prepared and qualified for this marathon with your lending ready through credible preapprovals will be much better for you than just guessing based on doubtful credit or financing situations. The next month is about strengthening your credit score and profiles as responsibly as possible so when the time to start shopping comes, you start with the best possible conditions!

    Call now for expert credit repair services: (888) 803-7889

    Read More:

    How come I no longer have a FICO Score?

    Why does Experian say I have no FICO Score?

    Is myFICO the same as FICO?

    Is your Experian score your real credit score?

    How to find out your credit score for free?